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Budget 2014 springs some surprises for the stock market

Following Wednesday’s UK Budget, fund managers at Schroders share their thoughts on how this will impact the market…

Marcus Brookes, Fund Manager, Multi-Manager says: “The UK equity market overall has not moved very much in response to the budget but there have been some significant moves for certain companies. Shares of annuity providers have come under pressure due to the rule change that means people will no longer be required to purchase annuities. This news came as a surprise to the market but it looks like a sensible proposal as it gives people more freedom in terms what they do with their money, especially as annuity rates have been very poor.  The other significant impact is that shares of betting firms have also fallen following the announcement that taxes will be increased on fixed odds betting machines. Shares of companies such as Ladbrokes and William Hill have fallen as this measure will reduce their profitability.”

Jessica Ground, Fund Manager and Analyst, UK Equities, says: “Shares of annuity providers have been hit hard as the announcement about annuities did come as a big shock to the market. 96% of people who had a pension pot bought an annuity last year. However, it is not necessarily the case that this is the end of annuities forever. People will no longer be compelled to buy one but many individuals may still do so. The government clearly will not want a situation where people do not buy annuities and then run out of income during their retirement. The immediate reaction may seem as though it is Armageddon for the annuities market but it is likely to take some time to work out the details.”

James Bilson, Fixed Income Analyst, says: “With the General Election over twelve months away and the structural budget deficit still high, the Chancellor opted for a fiscally neutral budget with a focus on rebalancing the economy towards household saving, investment and exports. While the business community will surely welcome the supply side measures aimed at boosting competitiveness and productivity, this is better classified as ‘tinkering’ than wholesale change, and the overall macro impact of this budget is minimal. Rising demand and improving business confidence will ultimately be more important for the next leg of the recovery. Gilt issuance for the coming fiscal year was revised down sharply, causing 10 year Gilts to rally a few basis points, although this was as much for technical reasons as the result of lower borrowing due to the improved cyclical outlook. The long end of the gilt curve suffered as a result of the announcement about annuities, which is likely to reduce demand for long-dated assets from pension and insurance funds.”

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